Economy

More frightening yet are the "next shoes" that lurk in the insurance industry.  Like the now blood-red pension industry (great summary here by Mish),  the insurance industry took all the premium money and sought a slightly better return by placing it in financial exotica. 

Ryan Says Treasury to Need `Unprecedented’ Financing
"This year’s financing needs will be unprecedented,” said Anthony Ryan, the Treasury’s acting undersecretary for domestic finance, at a Securities Industry and Financial Markets Association conference in New York, where he was a last-minute substitute for Treasury Secretary Henry Paulson.

"Unprecedented" hardly does this justice; we need a more superlative word.  "Ginormous" comes to mind.

Perhaps the Germans have a single word that means "future destroying" that we could use.

Fed cuts rates half-point, leaves door open for more

WASHINGTON (MarketWatch) – The Federal Reserve on Wednesday slashed overnight interest rates by a half-point to 1.0%, and signaled that downside risks to growth remain, indicating even more rate cuts could come.

In its statement, the Federal Open Market Committee said the pace of growth has slowed "markedly" and the extraordinary financial market stress could put the economy at greater risk.
The Fed said that inflation was no longer a threat and that the central bank will cut rates as needed to boost the economy.

No real surprise here, but I will make a comment or two. The Fed, representing status quo interests, is desperately trying to recreate the exponential expansion of credit and debt that marked the last 2 decades (but really picked up steam from 2000 onwards).

US surrenders power to appoint World Bank president
The US is to lose its power to appoint the president of the World Bank after the UK’s development secretary, Douglas Alexander, brokered a deal to throw open the post to candidates from any country.

Backed by European governments and developing countries, Alexander overcame resistance from the US and Japan to secure a reform he described last night as "a significant step forward".

My Comment:  This may not seem like much, but symbolically it is huge.  The World Bank wields enormous influence, and for Europe, et al., to demand, and receive, the right to fill the post speaks volumes about US prestige and power at this time.  

First, retail sales and store traffic suffered some of the most pronounced drops on record in September, indicating that a consumer-led recession is upon us – which would make this the first one since 1991.

…the number of people in U.S. malls and department stores declined 9.3% year over year in September. The U.S. Commerce Department this morning reported that retail sales fell 1.2% in September, marking the biggest decline in three years.

Next, a measure of manufacturing activity in the Philadelphia and NY regions and a different measure of nationwide manufacturing capacity utilization both took very sharp turns for the worse:

WASHINGTON (MarketWatch) — Turmoil in the credit markets has spilled over with a vengeance into the factory sector in the Philadelphia region, the Philadelphia Federal Reserve said Thursday.
The Philly Fed index plunged to a reading of negative 37.5 in October from a positive 3.8 in September. It was the sharpest one-month decline on record and marked the lowest level for the gauge in 18 years. On Wednesday, the New York Fed reported that factory activity in the Empire State region also fell sharply.

In addition, about 43% said the recent turmoil had forced them to scale back their capital-spending plans.

The region’s manufacturing executives expect no growth over the next six months. The index of future activity fell to negative 4.2 from 30.8 in the previous month.

Earlier Thursday, the Federal Reserve reported a stunning 2.6% drop in industrial production in September, the biggest one-month drop in 34 years.

The data "make clear that the factory sector has taken a powerful turn for the worse," Action Economics said in a note to clients. "In total, since August, the economy has shifted from a profile of remarkable resilience to one of freefall at a pace that is consistent with a sizable, rather than mild, recession," Action Economics said.

One of the dominant myths of America is that we practice one of the
freest forms of capitalism on the face of the planet. Hard work and
prudence are rewarded, while Schumpeter’s ‘creative destruction’ quickly cleans out the mistakes.

Unlike most myths, this one apparently lacks a kernel of truth at the core.

As the details emerge over the various bailouts and market distortions,
it is becoming clearer that moral hazard has been increased, not
lessened, and that those who behaved prudently during the credit bubble
insanity are going to be punished.

Some are getting angry:

[quote]Community banking executives around the country responded
with anger yesterday to the Bush administration’s strategy of investing
$250 billion in financial firms, saying they don’t need the money,
resent the intrusion and feel it’s unfair to rescue companies from
their own mistakes.

And in offices around the country, bankers simmered.

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much
chagrined that we will be punished for behaving prudently by now having
to face reckless competitors who all of a sudden are subsidized by the
federal government."

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady
Adams said he has more than 2,000 loans outstanding and only three
borrowers behind on payments. "We
don’t need a bailout, and if other banks had run their banks like we
ran our bank, they wouldn’t have needed a bailout, either," Adams said. [/quote]